Greenspan Says the Words Wall Street Doesn't Want to Hear

Stocks and bond tumble after the chairman's hawkish comments. Techs lead the decline.
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Before the open today, people on Wall Street were talking about how

Alan Greenspan's

testimony this morning was the last, best chance for the stock market to hit new highs this summer. It's hard to give the stock market that has everything reasons to go higher, but they figured an even-handed speech from the chairman would entice it into a rally.

But the

testimony Greenspan gave was not even-handed at all.

The speech showed a

Federal Reserve

that, despite its return to a neutral policy directive on where rates are heading, is not really neutral at all. At the June meeting, said Greenspan, the

Federal Open Market Committee

"did not believe that its recent modest tightening would put the risks of inflation going forward completely into balance."

One comes away from reading this thing with the sense that the Fed, though it may not raise rates at its late-August meeting, will probably move to a tightening bias, with a good chance of a rate hike in October. Importantly, there's none of last year's "we won't tighten until we see the whites of inflation's eyes" stuff. In fact, lifting a bit of text directly from his June

speech before the

Joint Economic Committee

, Greenspan told Congress: "For monetary policy to foster maximum sustainable economic growth, it is useful to pre-empt forces of imbalance before they threaten economic stability. But this may not always be possible -- the future at times can be too opaque to penetrate. When we can be pre-emptive, we should be, because modest pre-emptive actions can obviate more drastic actions at a later date that could destabilize the economy."

Stocks and bonds sold off sharply on the speech. The

Dow Jones Industrial Average

was down 103.53, or 0.9%, to 10,899. The broader

S&P 500

was down 21.70, or 1.6%, to 1358.

Tech stocks were getting whacked. The

Nasdaq Composite

index was off 73, or 2.7%, to 2689.

Amazon

(AMZN) - Get Report

, down 13.7%, was weighing heavily on the Nasdaq, as it was on

TheStreet.com Internet Sector

index. The DOT was down 19, or 3.1%, to 596. The small-cap

Russell 2000

was down 5, or 1.1%, to 450.

The 30-year Treasury was off 25/32 to 90 2/32, sending its yield to 5.97%. (For more on the fixed-income market, see today's early

Bond Focus.)

Market internals were bad. On the

New York Stock Exchange

, decliners led advancers by 1,988 to 779 on 432.9 million shares. Downs were beating ups 2,405 to 1,168 on 588.1 million shares in

Nasdaq Stock Market

activity. New 52-week lows were outpacing new lows 44 to 28 on the Big Board while new high led 51 to 33 on the Nasdaq.

A Chart by Any Other Name

But while some trot out last year's chart and talk about how it's going to happen all over again, others have a more sanguine view of the selling.

"Yeah, we were short-term overbought," said Dick Dickson, technical analyst at

Scott & Stringfellow

. "Yeah, you're seeing some correction. I understand why people are worried, but I don't think it's time to run for the exits."

But Dickson did concede that "seasonal factors are a worry now because bad things have happened to the market in July and August."

Even without worrying about the ogres of August, there's an argument to be made for staying out of the market here. The news has been so good this year, it's hard to imagine even more good news coming down the pike in the next month or so. Many portfolio managers have already put on gains that are way better than what they made last year. Why not lock them in and head to Montauk? No need to get cocky and risk losing it all like in 1998.

"The market has given a great showing," said Ned Collins, executive vice president of U.S. stocks at

Daiwa Securities America

. "It's a sleepy summer, people are having great year and they're going to let nature take its course."

Thursday's Midday Watchlist

By Heather Moore
Staff Reporter

Xerox

(XRX) - Get Report

was down 5 1/2, or 9.9%, to 49 15/16 after saying ongoing pressure from both unfavorable European exchange rates and weakness in Brazil and Japan may harm future earnings. The company also posted second-quarter earnings of 62 cents a share, in line with the 12-analyst

First Call

estimate and up from the year-ago 54 cents.

Amazon.com

(AMZN) - Get Report

was down 17 3/16, or 13.7%, to 108 1/4 after last night posting a second-quarter loss of 51 cents a share, in line with the 21-analyst forecast and wider than the year-ago loss of 12 cents. Amazon also set a 2-for-1 stock split. Today,

Bear Stearns

downgraded Amazon to attractive from buy.

Morgan Stanley Dean Witter's

Mary Meeker deepened her 1999 estimated loss to $1.82 from $1.68.

Merrill Lynch's

Henry Blodget said in a research note that "profitability, if any, remains a next-millennium phenomenon." He also deepened his 1999 loss estimate to $2 from $1.74.

America Online

(AOL)

was down 5 1/16 to 110 after last night reporting fourth-quarter earnings of 13 cents a share, topping both the 30-analyst estimate of 11 cents and the year-ago 6 cents. Today, Morgan's Meeker increased her 2000 earnings estimate for AOL to 60 cents from 56 cents a share and her 2001 view to 90 cents from 80 cents.

Mergers, acquisitions and joint ventures

Charles Schwab

(SCH)

was up 7/16 to 47 9/16 on word it,

Donaldson Lufkin & Jenrette

(DLJ)

and

Fidelity Investments

agreed to take equal stakes in an electronic communications network (or ECN) based on

RediBook

, which is owned by

Spear Leeds & Kellogg

. DLJ was up 5/16 to 52 5/16.

TheStreet.com

wrote about the move in a story

this morning.

Earnings/revenue reports and previews

General Semiconductor

(SEM) - Get Report

was down 1 7/16, or 16%, to 7 9/16 after last night reporting second-quarter earnings of 14 cents a share, a penny short of the two-analyst view and down from the year-ago 19 cents. The company warned it expects 1999 earnings to fall short of 1998's 74 cents, citing additional interest charges from the restructuring of a credit agreement. Estimates call for 1999 earnings of 72 cents.

Nokia

(NOK) - Get Report

was down 6 15/16, or 7.1%, to 87 7/8 after posting a second-quarter profit of 877 million euros, up 61% from the year-ago period. Net profit increased to 581 million euros from 365 million euros in the year-ago period, a jump of 59%.

In other earnings news:

Analyst actions

Atmel

(ATML)

was down 1 5/16 to 29 5/16 after

Credit Suisse First Boston

started coverage with a buy and a 12-month price target of 38. Last night, the company reported second-quarter earnings of 13 cents a share, in line with the nine-analyst estimate. The year-ago loss of 92 cents included charges; Atmel did not provide per-share operating figures for the period.

Compuware

(CPWR)

was down 6 5/8, or 19.7%, to 27 after Credit Suisse First Boston and

SG Cowen

both downgraded the stock to buy from strong buy.

Goldman Sachs

lowered the stock to market outperformer from the firm's recommended list. Last night, the company posted first-quarter earnings of 24 cents a share, ahead of the 15-analyst prediction of 21 cents and above the year-ago 15 cents. The company's chairman also backed a 35% to 40% growth rate in 2000 and said he's "very bullish" on the fiscal year's outlook. While the company beat earnings estimates, its license and international revenue numbers were below forecasts, CSFB said.

Miscellany

ADC Telecom

(ADCT) - Get Report

was up 1 7/8 to 45 1/16 on last night's news it will replace

Nalco Chemical

(NLC)

in the S&P 500 July 30.

Suez Lyonnaise des Eaux

of France is acquiring Nalco in a tender offer that expires that day.

Unistar Financial Service

(UAI)

was halted for news with its last trade at 27 5/8 on Tuesday. The stock tumbled 55% over two days last week, and

The Wall Street Journal's

"Heard on the Street" column reported today that documents filed with the

Texas Department of Insurance

say Unistar last month told regulators it plans to sell a key subsidiary to its principal shareholders. The company's CEO said Unistar hadn't disclosed the planned sale in financial filings because it concluded it was too small to be a material transaction, the newspaper reported.